*2 LUMBARD, Before MANSFIELD and GURFEIN, Judges. Circuit LUMBARD, Judge: Circuit Corporación Agri- Plaintiff de Mercadeo order appeals cola from an entered [CMA] District of Judge Leval Southern report- New York December 1978 and F.Supp. (S.D.N.Y.1978) ed at 464 dismiss- ing CMA’s contract claim Mellon alleged Bank International [Mellon]. unjustifiably refused to that Mellon honor CMA’s draft drawn under Mellon’s letter of moved judgment and showed that failed conformity tender documentation in by benefi- of facts sellers. Statement specifications contained the letter granted ciary court Mellon’s and accountee.” district appealed. affirm. motion and CMA We compen- designed This dealings ease arises out of between This incurred losses seller sate the the Pan American Fruit and Pro- CMA and insolvency or as buyer’s result *3 CMA is Corporation duce [Pan American]. leading to contingency any of other result corporation organized under the laws of of credit The letter buyer’s default. the Republic the Venezuela as an official of buyer from both for statements called government in business agency engaged buyer’s acknowledging the seller and the selling of commodi- agricultural Venezuelan any specify default, contract did but the corpora- ties. Pan American is a New York buyer would which the under circumstances engaged tion trade. The in international However, issue a statement. required to corporation Mellon Bank is a New York default, could seller in event of well. produc- requiring order sought court March, 1974, state- necessary CMA and Pan American buyer of the by the tion provid- which good entered into Contract No. 84 faith to enforce ment in order ed that CMA to Pan American would sell court No such parties. of intentions approximately 30,000 metric tons of Vene- the letter until after sought here order $9,630,000. paddy price zuelan rice at a of expired. of credit provid- The ninth contract paragraph of the American Pan April, ofAs price by ed payment purchase for letter irrevocable the first failed obtain letter of credit. means of irrevocable payment was to be used of credit issued in This first was to be letter of credit para- in of price, violation purchase within favor amount CMA’s in the above therefore CMA graph nine of contract. five of the contract days after execution April, 1974 that in late Mellon advised sale. liqui- right to obtain planned to exercise its contractual performance To ensure of its letter damages under the second dated of the first obligations, including execution American’s agreed, Pan credit. paragraph letter of credit as date expiration to extend request, nine, agreed provide CMA Pan American April from letter of credit the second guar- with upon execution of allow 30, 1974, in order to June purchase anty percent of the total of ten its to cure for Pan American more time $963,000. contract further price, of however, American, failed default. Pan become provided that this Accordingly, on its cure default. “by of the sole fact non- payable virtue awith Mellon Bank presented any of its by Pan American of fulfillment” credit on the second draft obligations agreement. Accord- under $963,000, by docu- accompanied amount of purchased ingly, Pan American from Mellon the re- CMA claims satisfied ments which Bank March 1974 a second letter of on These quirements of the letter of (LC 5171) pro- favor which included: $963,000 liquidated damages totalling vided Val- by one written Sr. 1. A document should Pan This second American default. Valera 29,1974, in which era on obligated letter Mellon to honor representative is the asserts that he up sight drafts amounts drawn Pan Amer- and that of Pan American $963,000, accompanied by: when obligations ican has not fulfilled “Beneficiary’s signed dupli- contract; under Produce cate that Pan American Fruit & A of Pan American's copy with

Corp. perform did not in accordance authorizing Valera 13,1974, 30,- February sale of purchase contract 084 for on behalf No. 84 sign Contract with Paddy 000 M.T. Rice in accordance infra); (see Pan American agreed upon buyers and conditions signatures 3. A statement which Pan certi- that Pan Amer- ican obligations July, had not fulfilled its fied to Mellon in 1973 authorized contract; dealings under the represent in its certified to Mellon Mellon. Pan American 4. A copy bearing Contract No. D. Hel- signature the name and Gilbert signature Valera’s for Pan American. ler, president, and Loretta American’s Since authority Valera’s sign behalf Szeliga, secretary. Valera’s name was of Pan American signatures never on list authorized of credit is at the center of this controversy, submitted to Mellon. we shall review the nature and extent of that authority in some detail. Pan Ameri- Valera Finally, whatever can engaged Valera, a Venezuelan commod- possessed respect to trader, ity in early purpose document dated was revoked in notarized *4 negotiating the contract with CMA. Ac- 8, received this docu March 1974. CMA cordingly, on February 13,1974, Pan Amer- eighty days before ment March 1974— ican sent to letter, CMA the following signature Valera’s attempted to use CMA which delineates the authority granted to of credit. To be to collect on the letter Valera: sure, impact of this to lessen seeks Gentlemen: the way that by arguing notice revocation We pleased are you to hereby inform received ren it mailed and which was that we have conferred a power argues that Pan attor- it dered ineffective. CMA ney to Mr. Gonzalo Valera, Sanchez Iden- to this letter American should have sent tity (Venezuelan) Card No. presi department or to the legal which he is to sign entitled contracts and importance would office, dent’s where its represent us and our company before the Instead, this have been recognized. private official and organizations of the bureau of was received another Republic of Venezuela. correspondence general placed Very truly yours, recog file, was not significance where its Pan American Fruit through until nized defendants obtained & Corp. Produce however, is discovery. ageht, Notice to the person notice to the principal, unless

Pursuant to this authorization Val- giving to notice reason know signed has era Contract No. 84 on behalf of Pan agent duty has will not transmit to or American. authority contained in this general letter, message principal. to the See however, general. Rather, was not ly, Seavey, Through Agent, Notice Valera was represent authorized to has (1916). U.Penn.L.Rev. 1 American Since CMA pri “official and showing made no should American organizations vate Republic of the of Vene have known that the mailroom would zuela”—such as CMA. Mellon Bank is nei not transmit to the private ther an the revocation notice organization official nor a proper parties, In Republic general applies. rule of Venezuela. Accordingly, deed, even authority proof receipt did not include without representation addressee, proof of Pan American before was sent Mellon Bank such letter did not would be any authority strong include no prepare evidence sufficient tice. documents necessary on the letter of credit. CMA does not assert that When CMA payment on the demanded Valera’s authority enlarged was ever be of credit, authority lack Valera’s

yond parameters delineated in this Feb immediately attracted attention. re- After ruary 1974 letter. viewing the noting documents and Valera’s

That Valera lack possessed authority, never the authori- Mellon Bank checked ty prepare sign the documents with Pan neces- see if it should sary for CMA to collect on the letter of nevertheless honor CMA’sdraft on the basis credit is further confirmed the names of Valera’s signature. Pan American ad- 8, 1976, sum- July Mellon moved for On was not authoriz- that Valera vised Mellon sign ground facts or that Valera prepare mary judgment, a statement of ed to Mellon should for Pan and that sign for Pan Ameri- was not authorized pay on the draft. therefore not pay on the letter can and that the refusal 11, 1974, May On proper. advised CMA of credit was therefore June On draft because: it would not honor the Judge Cannella denied Mellon’s mo- Valera is . Sanchez “. . Sr. Gonzalo the ground in a two-sentence order on tion sign on behalf not authorized issues re- disputed there were factual accountee, Fruit and Pro- Ameri- of Pan garding the effectiveness in- Corporation. The accountee duce alleged of Valera’s authori- can’s revocation previ- us the forms pur- knowledge of that ty parties’ and the ously prior granted to him revoked ported revocation. opening Consequently, of our credit. again discovery, Mellon After additional requirement facts asserting summary judgment, moved for by the accountee has not been fulfilled.” a motion discovery made such that further CMA never state- submitted day, without again. That same proper once ment of facts to Mellon. The letter of trans- action was request by parties, expired ensued sever- There Judge Leval. ferred CMA commenced no seeking action in- Leval, pretrial conferences junctive al relief Mellon or Pan Amer- *5 ican, and afforded requiring such as an issues order Pan Ameri- who raised additional provide facts, can to prior a statement of respond opportunity parties expiration of briefs supplemental these issues credit. Nor did CMA seek to cure the de- Mellon’s granted Judge Leval affidavits. original fect sub- documentation on Decem- judgment summary motion for mitting revised or new In- documents. 6, 1978. ber stead, CMA commenced this suit motion granted Mellon’s Judge Leval 26, 1974, seeking Mellon on November dam- First, reasons. for two judgment summary ages alleging of breach contract and to be stated is neither which power a since that Mellon breached CMA interest with an coupled On nor failing pay on the letter of credit. revocable Mellon 5, 1975, that complaint a April will, second concluded CMA filed he revocable an seeking the form of equitable relief in a statement honor required to could not be a deliver Pan American to directing order confirma- without fresh representative a ad- proper of facts to Mellon authority. representative’s that tion of re- pro tunc to judging Mellon nunc Val- concluded Second, Judge Leval of facts. proper statement ceived a include did not original authorization era’s for dismissal Pan American moved of Pan on behalf authority make any “to 12(b)(6) of to Rule pursuant action second its banker a statement Procedure. Rules of Civil the Federal autho- liability amounting to a confession summary as one for Treating the motion nearly a indemnity of payment of rizing Judge Cannella of Southern judgment, law is black letter million dollars.” Since dismissal York ordered District of New and conditions that the terms 21, 1976, on the to Pan American to, see, g., e. strictly be adhered credit must late then too ground that Sports- Corp. E. K. Trading S. Bounty a state- provide compel (1st wear, 370 N.Y.S.2d 48 A.D.2d appealed has not ment of facts. CMA 1975), Leval concluded Dept. Judge day, Judge Cannella ruling. On the same only proper course followed Mellon had for consol- granted cross-motion also CMA’s refusing payment.1 available idation. Judge Can- tracks Judge respect on the letter to the draft conclusion with Leval’s when he same issue on the propriety conclusions to honor nella’s Mellon’s refusal appeal, argues pre-

On Judge defendant was as a result Since Cannella’s denial of Mellon’s first motion introducing relevant vented from evidence judgment for summary the law became issue, grant to that this court reversed barring the case Judge Leval from later has summary judgment. Here there granting a similar motion. Dictograph In right to be heard been denial of the Company Corporation, Products v. Sonotone any Although Judge issue. Leval himself 1956), (2d 230 F.2d 131 we set forth the legal raised the issue of need to confirm governs standard which consideration of Valera’s authority, par- he heard from both such a motion. We held that aon renewed orally writing ties point, and in on this summary judgment motion for before a addition, CMA concedes in its brief. judge, second the district court must bal Judge entirely Leval did not introduce an finality against ance the need for force issue, new as occurred in FLLI Cereali Mor- fulness of new evidence and the de Judge etti. Leval directed attention to a justice. respect non-ap mands of With ato different facet of the one issue which has pealable judgment, denial central to this case from the been moment law of the is not a case limit on the court’s it was filed: the nature and extent Val- jurisdiction, practice but a rule of authority. era’s With the outcome may departed from in discre the sound dependent upon question, this one dispute judge tion of the district court. The first surprise can hardly claim because always power ruling; has change deeper probed Leval somewhat than further reflection allow better in parties. either of the did ruling formed in accordance with the con science fortiori, of the court. A if the first argues that when Mel CMA also judge change denying can his mind after revocation to Pan American’s lon referred summary judgment, change ruling, his refusing to honor of Valera’s judge second should have does have credit, draft on the letter power so to do as well. defenses, including thereby waived all other complete lack based on Valera’s a defense *6 Judge also contends that Leval too We think this authority at all times. reached out to decide an issue not tendered is authority of the a construction narrow parties need to confirm Val- —the one sure, a offers To be when bank sue. era’s authority requires this error —and draft on a letter refusing a reversal reason under FLLI Moretti v. Cereali Con refuted, credit, it is later Co., and that reason (2d tinental Grain 563 F.2d 563 Cir. 1977). entirely at an different Cereali, point Moretti cannot trial FLLI the district granted court sustaining refusal. Other judgment on the reason beneficiary basis wise, surprise of its determination of an a bank issue which could was not raised statement of facts. letter of a defense which of a credit with

granted S.A., 1971), (5th de Pan American’s 450 Cir. cert. motion to dismiss on F.2d 419 21, opinion, nied, 1771, Judge In his Cannella 406 S.Ct. 32 L.Ed.2d U.S. 919 [92 Venizelos, (1972); had written: Man S.A. v. Chase 118] 1970). Bank, (2d hattan 425 461 F.2d obligation “A bank’s in a letter of credit obligated plain Here Mellon itself to honor transaction is defined the contract be- against tiffs drafts letter of credit until tween the and bank its It customer. 30, 1974. Mellon did not receive When obliged pay if the sub- documents date, proper prior to that strictly comply mitted re- the essential wrongful quirements whether due acts g., to its customer’s of the letter of E. Fair otherwise, obligation pay Pavilions, Bank, its terminat City v. First Inc. Nat’l 19 rights plaintiff may 512, 23, Whatever have ed. now N.Y.2d 281 N.Y.S.2d 227 N.E.2d 839 wrong alleged (1967); Anglo-South for its Co. v. Trust facts, Uhe, 150, (1933); ful refusal to submit a statement 261 184 N.Y. N.E. 741 Ufi- tec, Co., they enlargement do S. not include an of Mel A. v. Trade Bank and 21 Trust credit, obligations (1st Dept. A.D.2d the letter of 249 N.Y.S.2d lon’s under 557 aff'd, 1964), Any wrongful part. 16 N.Y.2d some act on its 261 N.Y.S.2d absent (1965). Accord, 209 N.E.2d 551 Sisalcords other result would have serious ramifications Brazil, Sisal, throughout banking community.” Do Ltd. v. Fiacao De Brasileira obligated pay was never See, ingly, Mellon g., e. earlier. might have been cured good faith question the draft and National Park Maurice O'Meara v. Appliance, See, g., Key é. where, not arise. 397, 146 does But N.Y. N.E. 636. Bank, 37 N.Y.2d City National Inc. v. First here, refusing a a reason for as bank offers 339 N.E.2d 826, 377 fairly N.Y.S.2d which a letter of credit a draft on Ray Wear, Inc. (1975); Sports Head AMF authority so agent’s places into issue an Inc., Club, Sports All-American proper of the Scott’s question there can be no (“Dishonor of (D.Ariz.1978) F.Supp. trial, no surprise at there is cure and no demand when the payment a demand for action as reason to construe the bank’s the terms comply not Although does waiving authority defense. faith”). bad constitute of credit cannot refusal mentioned Mellon’s statement of authority, mere men revocation of Valera’s if CMA contends Finally, necessarily did not tion the revocation fail, should this court arguments legal conceding mean that Mellon was henceforth pro nunc equitable issue an nevertheless possessed have that Valera otherwise to have Mellon adjudging order either tunc authority. full or di of facts a proper received argues grant proper sum- CMA next a to deliver recting Pan American mary because neces- has judgment was error Mellon since facts. But statement of Judge wrongdoing sarily required that Leval resolve any guilty of been shown not contends that disputed issues of fact. CMA under faith, legal obligations or bad Judge authori- finding Leval’s that Valera’s there is expired, the letter of credit stale, entitling to refuse to ty awarding equitable decree. basis credit honor the draft on the letter of a moreover, without CMA, not been has of authori- Rather, absence of a fresh confirmation slept CMA has remedy law. ty, required disputed resolution of claims the letter Once rights has. whatever for trial. remedy fact was therefore matter towas expired, proper credit remedy directly, sue Judge We whether Leval need not decide pursue. has chosen to not holding that author- was correct in Valera’s ity was stale under the circumstances ob- doubt, Brother our There can be no taining out, here. Leval also held that points so persuasively Gurfein authorization, original Valera’s as docu- accepted by terms mented, did include for it be- to be unfortunate proved sign a statement of facts for the letter of it, they cause documented, authority, credit. Valera’s made, to Mellon present could question We law. have reviewed facts”, by CMA signed “statement *7 documents, the relevant which are unam- Pan Ameri- American, respect to biguous, we never agree and that Valera un- obligations perform failure to can’s requisite authority. Accordingly, “in accord- contract rice-purchase der the grant summary judgment by buyers we affirm the upon agreed ance conditions ground. ambiguous on this nothing We find and sellers”. which was plain requirement, about also Leval claims that against protect to the bank clearly intended granted summary judg should not any dispute that in becoming involved good ment because acted in whether Mellon beneficiary might develop between denying faith in draft is a factual mat underlying con- whether accountee over only which trial. ter can resolved at But be met. ditions had been good Mellon’s faith is not relevant issue busi- CMA, sophisticated presumably a among on this record. The by put notice parties pay organization, had been required that Mellon on the ness of credit the letter presented plain language only after express written limitation conforming never documents. authority, was restricted presented conforming documents. Accord- Valera’s 50

representation 516, organizations 23, of the N.Y.S.2d 227 N.E.2d 839. Republic of Venezuela and did not extend put good This would in issue bank’s credit, to the letter of that it would have to refusing pay beneficiary faith in rely upon Pan join American to under the letter of credit. statement of default if that should become give “guar- Here the bank was asked to necessary. This reliance turns out to have CMA, seller, antee” to the Venezuelan However, been misplaced. predica- particular contract numbered 084 for the ment is not attributable to Mellon but to purchase of million worth of rice. What $9 Pan American. Thus CMA failed to avoid gave it purported standby was a harm to it negotiating a more advan- which, according credit under inter- to the tageous letter of credit in place the first or brothers, pretation my buyer by seeking against relief Pan American be- payment by able without reason to veto the fore the letter expired. simply failing provide a “statement of Under circumstances, hardly it is ap- facts.” propriate for a federal court supply protection It is true standby letters of credit thought which CMA it had at the expense of pay the Mellon are now used not Bank which when there is within rights strictly performance construing the but pay up also to when there agreement. Any may claims CMA have as is performance. default I do not doubt a result of its bargain against bad lie that a pro- letter of credit be used to American, against the bank. vide deposit against credit in lieu of a cash the contingency of default. In such I case

Affirmed.

think that what should be ais GURFEIN, Circuit Judge, dissenting: simple beneficiary notice from the stipulated default has occurred or some ob- The New York Court Appeals in Fair jective statement party third Pavilions, Inc. v. Bank, First City National event of passes default.1 Otherwise what 512, 518, 19 N.Y.2d 23, 27, 281 N.Y.S.2d for cash has no resemblance to cash. The (1967), N.E.2d said that if a clause issuer bank precisely should know what the of a standby letter of credit were construed requires so as are that to be “place party one at the mercy of another,” presented controversy. without cavil or general “is policy of the law.” agree. beneficiary I That should know that it will be court also noted that when paid the bank gloss had neither if default should occur collateral without or nor a customer financially respond, able to independent review an may, issuer who it was “defending in its then, own interest.” Id. eager pay not be up. That is See, g., Barclays e. Bank D.C.O. v. Mercantile While a letter of credit must conform to the Bank, National (5th specifications customer, 481 F.2d 1228 n.5 of the bank’s there 1973), dismissed, cert. compels U.S. lawno a bank to issue such (1974); S.Ct. Victory 39 L.Ed.2d 96 ambiguous Indeed, illusory Carri document. ers, States, 1334, 1339, Inc. v. United 467 F.2d paragraph “d” of the UCP’s General Provi- (1972); Industries, 199 Ct.Cl. 410 Intraworld provides: sions and Definitions “Credit in- Inc. v. Girard Trust 461 Pa. 336 A.2d structions and the credits themselves must (1975); Empire 319-20 n.7 Ins. complete precise and, in order Wilkes-Barre, Co. v. Hanover National Bank of guard against confusion and misunderstand- *8 459, F.Supp. 409 (M.D.Pa.1976); Dy 461 n.l ing, issuing discourage banks should at- Corp. namics of America v. Citizens and South tempt by applicant for the credit to in- 991, ern F.Supp. National 356 994 n.2 Henry clude excessive detail.” Harfield (N.D.Ga.1973). adds; And see illustrations in B. Ko ampli- “This word of caution should be zolchyk, Commercial Letters of Credit application ‘guaranty fied in its credits’ Americas, (1966). § 1.02[3] 24-25 In a prophetic insight. and their ilk.” —a Har- standby required letter of credit “the document field, Code, Customs and Conscience in Let- usually nothing is more than a certificate creat Law, (1971). ter of Credit 4 U.C.C.L.J. 15 by beneficiary.” Justice, ed Jack B. Letters Expectations of Credit: and Frustrations —Part I, Banking (1977). L.J. terms, by the an admission of default in provides that a presumably why UCP “the its of determine, simply but version on the basis of accountee “must bank may be. alone, they whether to claim whatever facts” not acceptance negotiation was payment, of contract for sale March 1974the On and with the terms in accordance effected was paddy approved rice UCP Article of the credit.” conditions signed day by the same Sr. Gonzalo Sanchez added). has a commentator (emphasis As agent On the Valera as for Pan American. noted: day, as it made to very same March was of value The financial later, appear purported Pan American de- upon predicated is promise credit revoke Valera’s agency. certainty. legal gree Though it is now contended that Valera’s n.l, at 394- Kozolchyk, supra § B. 18.04[1] agency effectively was revoked March 95. permitted CMA was on March 13 to coun- issuing allowing credit In tersign very contract Valera had customer, by its veto bank took neither signed on Pan Con- behalf of American. customer, American, collateral from its Pan tract 084 as the explicitly refers Valera personal indemnity nor even from signatory authorized principal. American’s It has been asserted the record shows. summary judgment affidavit on the mo- that Pan tion American had two offi- irrevocable let- Contract 084 required employees, line apparent cers and purchase price ter of credit the full Mellon, except capital, from no visible con- days within posted signing five accounts, sequential resources or active the contract. bank purport- Since the was operated lawyer. was from the office of its ing indemnify per- for a failure We must take these assertions unrebut- particular contract, 084, formance of a we purposes summary judgment. ted for assume, on a motion for sum, when on the letter of credit judgment, copy it had a the contract demanded, “defending was in was the bank signatory which would show Valera as the its own interest.” agency on behalf CMA. Thus Valera’s place, together in his so signature, with on CMA perpetrated a hoax was That far as Mellon was concerned. Pan Ameri- it had believe that It led to obvious. when, can failed to furnish guaranty of an American bank fact, according major- nothing, it had

ity. Inter- La Guaría 1974 Banco On Letter of Credit Specifically Irrevocable advis- nacional, designated Mellon as its $963,000 until available CMA 5171 made bank, requesting pay- ing wrote to Mellon 30,1974 against sight draft accom- and enclosing: ment panied by following documents: $963,000.00. Sight draft for U.S. 1.

Beneficiary’s dupli- signed statement that Pan Fruit & Produce cate evidencing that 2. from Statement perform in with Corp. did not accordance with complied has 30,- purchase/sale for the of the Contract requirements Paddy 000 M.T. Rice accordance of Credit. said Letter guaranteed by agreed sell- upon buyers conditions & evidencing Valera 3. from Statement by beneficiary ers. facts Statement of complied principal that his has not accountee. 084. Contract No. clauses of added.) (Emphasis legalized the docu- Photocopy duly “state- explanation There is no what *9 require, American confers ment of facts” It does not ment which Pan means. power of attorney on Mr. 1974simply “indicating Gonzalo that Pan Ameri- Sanchez Valera.2 can had comply failed to with Contract 084 5. the relative Photostat of contract.3 as a (141a). declaration of fact” The trier of fact could find that Valera was acting as rejected On the June 11 Mellon docu- agent in both when situations on the same assigning ments and the draft dishonored day April at the procured end of he its sole reason that its customer had in- extension for agency formed it Pan American and that the had been revoked acknowl- edged signed even before also that default, Contract 084. it was in actual agency power did not assert thus the trier find agency could that his furnished to it was insufficient on its face extended beyond March alleged the date permit agent give to the to the “statement of revocation. Valera had not been in- required. of facts” Let us look at formed that his agency had allegedly been agency. signed revoked the day contract, he nor power The attorney gave on its face was it brought home to the negotiating power sign Valera contracts not on persons CMA; and Valera being was still behalf “rep- of Pan American but also to agent used as by Pan American after March company resent us and our [Pan American] 8. private organizations before the official spite In of the rule the International Republic of the Venezuela.” There was Chamber of that Commerce the issuer of express no on scope limitation of his may go outside the “represent” Pan American be- presented, UCP Article Mellon fore CMA. And it was CMA which was to just that, did and one wonder whether present containing a document a “state- that simply was not because Mellon was ment accompany of facts” to its draft on “defending in its interest.” That own sus- appeared Mellon. When on 29 Valera picion strengthened by the circumstance legal department of CMAhe was that, having gone already beyond the docu- asked confirming to submit an affidavit ments, the bank then failed to ask Pan failing American’s provide default it, question American the natural whether irrevocable letter credit for the full as principal, supply intended “state- purchase price. ment of required facts” CMA if Valera Instead, Heller, princi- Valera called longer power had the to do so pal American, in Pan who told Valera to agent. request patient CMA to be and not to take suppose I my essence of disa- any action regard to the initial letter greement majority with the is its conten- as a furnished with the assurance tion that “good that the letter of credit CMArelied faith” of covering purchase buyer price speci- the sum of since “the contract did not U.S. $9,630,000 opened fy buyer be within the fol- under which the circumstances lowing days. ten would be to issue a statement.” point fact, seller did not know CMA, Valera agent informed still as buyer, rely good refused on its credit or direction, pursuant to its requested guaranty. appar- faith and It date expiration of the standby Valera, ently appointed did know agent. letter of credit would be past extended Moreover, suggestion the benefi- April 30 so that CMA would not preju- ciary buyer compel could have delay. diced sued the short Accordingly, Val- era him to file a with the bank is so paper submitted an affidavit to CMA April company 2. This document reads as private follows: before the official and or- ganizations Republic Gentlemen: of Venezuela. Very truly yours, pleased you hereby We are to inform Pan American Fruit power attorney we have conferred to Mr. Corp. & Produce Valera, Identity (Ven- Gonzalo Sanchez Card ezuelan) 163598, by photostat, signature presumably, No. which he is had the entitled sign represent contracts of Valera on it. us and our

53 exists, law) the ambiguity mercial if simple pattern to of letter contrary the against strongly as the it words are taken suggestion, the even if credit law that justify. reading will overtones that issuer as a reasonable practical, has serious were New speed Bank of With the essential Lamborn v. National Park are undesirable. hardly York, 428 sup- App.Div. would 208 N.Y.S. to letters of credit one contemplating pose an instrument 148 N.E. (1925), that aff’d 240 N.Y. is a true court action for effectiveness I take “statement would the words letter of credit. as a against the issuer strongly facts” “as change to the Though I desire a justify.” will Id. Such reading reasonable law, I austere nature of letter of credit facts” reading be “statement of Mellon, case, has issued this believe simply says requires it what it means —that such of credit that the an unusual letter not a a had occurred and statement of what If, it. construed language must be of default. Valera’s confession was, believe, I letter of credit in the as the give to such a on its face was abundant Pavilions, supra, against pub- spirit of Fair CMA, he was enti- to factual statement it so was policy, lic and even more because “represent” to tled game in permitted to be used in a flim-flam the obtained document CMA. When CMA trade, question is what to international the American, it Valera, of Pan agent from the do it. about present it to the bank right the draft, it accompanying document to entirely, One cannot it down strike CMA, and not Pan beneficiary, beneficiary disadvantage that would the docu- present which was to it. us who did not write This leaves with In the circumstances ments the bank. (1) interpreting so it that it choice to indicate nothing papers on the there buy- will allow an veto absolute agency er, Valera’s slightest degree (2) holding or that it not a true is revoked, fa- and the bank under guaran- had been of credit at all but is rather a permit- law was not miliar letter of credit ty- docu- beyond the face inquire ted precedent a There is in this court for fair Thus, approach, the under this first ments. meaning construction “statement clearly is not entitled bank justify interpreting of facts” so judgment. phrase against As the bank. J. Jo- Venizelos, seph give Smith wrote in S.A. that to A fair is hold alternative Chase Manhattan 425 F.2d whose person veto to the an absolute (2d 1970): Cir. giv- credit was standby behalf en, concededly though even he failed fairly suscepti-

Where a letter of credit is constructions, contrary to the conventional perform, ble two is so one fair, paper loses customary usage makes it one of credit which letter prudent into, applicable to men would of the strict rules naturally enter the benefit theory that a letter while the of credit. The inequitable, other makes letters differently from in law interpretation preferred former must of credit is treated be is latter, enough guaranty simple construction render- is —that bene- ing possible issuer and performance separate contract between perform- whose preferred ficiary person will to which to one which renders its party. But performance is is not a impossible meaningless. guaranteed ance arbi- Liberty power has the person See Nat’l Bank & Trust Co. v. when that veto, a trilateral Savings trary Bank of American Nat’l Trust & instrument and is Ass’n, (10 1955). than a bilateral instrument F.2d rather Moreover, like the conven- beneficiary like a than as between the of more to which we (or standby letter of credit and the issuer tional case, past few Chase, since confirmers are to be have become accustomed decades, along tight rules. treated as New York com- issuers under *11 Moreover, would phrase hamper the It rather than advance “statement of facts” ambiguous. is on face Does it letter the extension of the of credit con- require a “statement of facts” from the cept to new if an instrument situations aecountee agreeing with the statement as this to be a letter of such were held the beneficiary? pro- Could the aecountee The of this instru- credit. loose terms disagree- vide its own “statement of facts” very invited evil that letters ment the ing beneficiary? with the the protracted, credit are meant to avoid— happen What possible would then? It is If the expensive litigation. argue differing each version “the concept have value in new is to facts” would have to be examined the situations, tightly must be instrument bank and a decision made whether ben- clearly limit the strictly drawn eficiary right. or the aecountee was responsibility of the issuer. hardly Yet that is the duty prerog- or the 1286-87. Id. at ative of a bank which issues a letter of is apposite And that another The stricture is more in the why reason this even is not a letter of credit in case, the conventional present for document well this sense. Once the issuer bank has look have become an instrument fraud. outside the documents tendered or to meet reasonably What took Venezuelans its obligations to the beneficiary only upon simply bank a be a device defaulter, sufferance the docu- peddle that enabled Pan American ment, labeled, how matter is anot in the market without fear of con- of credit. sequence. precedent There is treating paper guaranty, If we view this as a agreement purports on its face to be a “letter of supply of the failure to establishment credit” guaranty. Eagle as a Wichita pur- letter of credit for the full irrevocable Co., Beacon Pub. Inc. v. Pacific National price chase would make bank liable. Its Francisco, Bank of (9th San 493 F.2d liability might for the total amount be sub- 1974). Cir. bank had issued a “letter of however, ject, provi- to a that the defense requiring credit” upon to a lessor was, liquidated damages sion for in the default parking construction of a circumstances, penalty or to such other garage by the lessee. holding that the as may guarantor defenses be available to a agreement, though called a “letter of cred- performance. it” face, on its was a guaranty rather than credit, valid letter of the Ninth Circuit summary judg- The affirmance of the emphasized agreement not re- did ment, my view, in reputation diminishes the quire payment upon presentation mere banking community of the American in in- documents, that it suffered “loose from foreign ternational trade. If a business terms” facts”], “statement of and that [cf. rely guaranty through cannot on a bank the lessee was authorized to terminate the when, though “letter of credit” default has agreement merely upon representing to the occurred, recovery it is denied without trial bank that the lessee had been refused a courts, image in building permit. The control cus- credibility foreign in tarnished. “American tomer, ambiguity, and the examination KMW Inter- injured. communities” is See by the issuer of facts not contained national v. Chase Manhattan documents themselves significant were (2d 1979). F.2d Eagle they Wichita are In that here. case, the Ninth Circuit ultimately held for deep respect sophistication I after beneficiary treating the “letter of my brothers. I am in financial matters of credit” guaranty. as a reluctant, nevertheless, particularly to sub-

I to such an result since adopt rationale the Ninth scribe unfortunate afraid, Circuit serve, which stated: encourage will I am instance, Asserting, granted beneficiary. extension that an oral of time been future, per- practice continued loose American com-

haps to the detriment of the banking. position in world

petitive summary judgment

I would reverse proceedings.

and remand for further *12 Loyce LILLY,

Leo and

Plaintiffs-Appellants,

The STATE RETIREMENT TEACHERS

SYSTEM OF OHIO PENSION FUND Incorporated, De- Lehman Brothers

fendants-Appellees.

No. Docket 79-7217. Appeals,

United States Court of

Second Circuit.

Argued 1979.

Decided Oct. Kreindler, Litowitz, & Kreindler

Ronald Grossman, New (Edward A. City New York counsel), plaintiffs-appel- City, of York lants. Thacher & Hagan, Simpson, J.

James F. McKen- Bartlett, City (Nancy New York counsel), na, defend- City, New York Inc. ant-appellee Lehman Bros. Remsen, Schwartz, Kelm, Sha-

Russell A. Columbus, (Nelson E. Kelm, Ohio piro & Genshaft, Columbus, Ohio, counsel), for Teachers defendant-appellee The State Pension Fund. of Ohio System Retirement